Treasury yields rose on Monday as data on orders for durable goods and pending home sales surprised to the upside, but the sale of two- and five-year notes was weak as the market gauges the economy and Federal Reserve efforts to tame inflation. The Treasury sold $97 billion in two- and five-year notes at a time when the quarter ends on Thursday and the market is grappling with how the Fed’s plans to aggressively hike interest rates will impact an economy that is showing signs of slowing.
“It’s a matter of almost $100 billion of supply getting priced on a Monday before a holiday,” said Tom di Galoma, managing director at Seaport Global Holdings. “There’s not a lot of interest of putting fixed-income securities on bank balance sheets at quarter-end.” The quarter-end scenario is better for equities, he added. Yields at the middle of the curve rose above those on the benchmark 10-year note. The 10-year note rose 7 basis points to 3.194% and the two-year’s yield, which can herald rate expectations, gained 6.9 basis points to 3.126%. The five-year rose 8.1 basis points to 3.258% and the seven-year rose 7.8 basis points to 3.268%. “The short end of the Treasury curve has been rich for weeks.
It did not come close to keeping up with the sell-off that we saw in the forward money markets after the Fed meeting two weeks ago and it hasn’t really recovered since,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis. Orders for U.S.-made capital goods and shipments increased solidly in May, pointing to sustained strength in business spending on equipment in the second quarter, while durable goods orders advanced 0.7% after rising 0.4% in April.
The National Association of Realtors (NAR) said on Monday its Pending Home Sales Index, based on signed contracts, rose 0.7% last month to 99.9, rebounding from a two-year low in April but plunged 13.6% in May on an annual basis. The data was for May, before the Fed hiked rates by 75 basis points two weeks ago and is now expected to do the same in July as part of efforts to corral soaring inflation. The Fed has cited a strong labor market as reason that higher rates will not force the economy to slow sharply or tilt into recession. However, rising rental rates are creating headwinds for housing affordability, Moody’s Analytics said on Monday.
The percentage of rent-burdened metro areas, where the rent-to-income ratio is above 30%, has jumped to 23 from eight since late 2019. Rentals rose 2.5% in the first quarter and likely will rise close to the same in the second quarter, Moody’s said. The auction of $46 billion in two-year notes sold at a high-yield of 3.084%, while the $47 billion in five-year notes sold at a high-yield of 3.271%. Another $40 billion of seven-year notes will be sold on Tuesday, the last of the week’s auctions before the long Fourth of July holiday weekend. The yield on the 30-year Treasury bond was up 4.6 basis points to 3.304%. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 6.7 basis points.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.828%. The 10-year TIPS breakeven rate was last at 2.562%, indicating the market sees inflation averaging about 2.6% a year for the next decade. The U.S. dollar 5 years forward inflation-linked swap , seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.535%. June 27 Monday 2:56 PM New York / 1856 GMT Price Current Net Yield % Change (bps) Three-month bills 1.65 1.6795 -0.008 Six-month bills 2.48 2.5455 0.059 Two-year note 98-215/256 3.1255 0.069 Three-year note 99-10/256 3.2172 0.073 Five-year note 97-36/256 3.258 0.081 Seven-year note 96-208/256 3.2679 0.078 10-year note 97-80/256 3.1941 0.070 20-year bond 95-144/256 3.5632 0.050 30-year bond 91-228/256 3.304 0.046 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 31.00 -2.00 spread U.S. 3-year dollar swap 14.25 -1.00 spread U.S. 5-year dollar swap 2.50 -1.50 spread U.S. 10-year dollar swap 7.25 -0.75 spread U.S. 30-year dollar swap -24.75 -0.75 spread
(Reporting by Herbert Lash Editing by Mark Heinrich and Nick Zieminski)